Standard Chartered Private Equity revives spin-out plan

Credit Suisse has been mandated to run a process that is intended to see the creation of a new platform backed by financial sponsors or a merger with an asset manager that wants to expand into private equity, several industry sources told AVCJ. This is consistent with Standard Chartered’s objective to exit the principal investment business.

The move comes as Wei Zhu, SCPE’s head of China and co-head of global private equity, prepares to leave the firm after eight years of service. Zhu will depart at the end of 2017 for a senior role in a different industry, but remain involved with SCPE in an advisory capacity, according to a source familiar with the situation. A new head of China will be announced in due course.

Standard Chartered decided it could no longer support a principal investment business off its balance sheet around 2012. It opted against a complete spin-out, instead completing five secondary transactions across four new limited partnerships that saw more than 40 positions worth $2.3 billion removed from the balance sheet. The SCPE team took a minority interest in each partnership. Among the new third-party investors were Coller Capital and Goldman Sachs.

The bank’s plans changed last June and talks began with the investment team over a spin-out. One of the challenges was said to be compensation – to maximize sale prices, Standard Chartered pushed down the management fees paid on the limited partnerships – and it wasn’t resolved. Joe Stevens, SCPE’s CEO who was leading negotiations on the spin-out, was dismissed last November, having been told the PE business would be wound down.

The third-party investors in the limited partnerships were unhappy and the departure of Stevens – as well as that of Bert Kwan, the head of Southeast Asia who had worked with Stevens on the secondary deals – gave them scope to act because key-person events could be triggered. As it stands, this hasn't happened.

The source claims that SCPE has spent the past 12 months stabilizing the portfolio: addressing various legacy issues; securing profitable exits from positions held on the balance sheet and in the limited partnerships; and establishing transparency and credibility with the stakeholders in anticipation of revisiting the spin-out option. The team’s cost base has also been trimmed so that the fees generated from the existing pools of assets under management are covered.

As a result of the exits and legacy clean-up work, the PE portfolio, which covers Asia, Africa and the Middle East, has shrunk from $1.6 billion to approximately $1 billion. Meanwhile, efforts to sell the $600 million real estate business are ongoing.

There is an acceptance that the spin-out might not be completely clean – even if the team goes independent it may still end up managing some assets for the bank. Nevertheless, there is a desire to find a substantial solution, as opposed to selling off assets piecemeal, with a view to raising additional primary capital at a later date. Several investors AVCJ spoke to were skeptical about this ambition, but the source said that financial sponsors and asset managers have expressed interest in the business.

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• Topics
• GPs
• Secondaries
• Fundraising
• Asia
• Standard Chartered Private Equity